Stopping Foreclosure by Filing Bankruptcy

If a consumer falls behind on their mortgage payments, and the lender accelerates the loan and initiates foreclosure proceedings, a Chapter 13 bankruptcy (wage earner) is often the only realistic way to save the home from a foreclosure sale.

Unless the homeowner can pay all unpaid mortgage payments, late fees, legal fees and foreclosure costs prior to the foreclosure sale, the lender will often proceed with foreclosures while offering loan modification options under HAMP or other programs, which may or may not stop the foreclosure. Many consumers rely exclusively on loan modification programs until it is too late and they are facing a foreclosure sale.

One thing that is very important to remember is that unless the lender agrees to stop the foreclosure by entering into a loan modification, the law firm conducting the foreclosure will be proceeding. This causes a great deal of confusion. It is a good idea to know about Chapter 13 bankruptcy, which can be a viable alternative for many people, even if they wish to attempt a loan modification.

Chapter 13 bankruptcy is the only way to immediately stop a foreclosure process and require the mortgage holder to accept payments on the arrearages over a period of time. In addition to saving a consumer’s home, Chapter 13 provides other benefits of discharging unsecured debts (like medical bills or credit cards), resolving tax problems, and reducing the monthly payments owed on secured debt such as car notes and furniture notes.

Post-Bankruptcy Filing Financial Management Course – What to Expect

After filing a bankruptcy case, the law requires the debtors to take a financial management course, which is done either online, by telephone or in a classroom.  If a debtor does not take this course, the bankruptcy court will close the case without a discharge.  Since the discharge is the motivation for filing a bankruptcy case, it is essential that this course be taken. 

In order to better explain to my clients what to expect, I took this course from a provider called StandSure.  They charged $15.00 for the course, which seems about average for other course providers in this area.  I found the course to be informative. 

The course begins by asking questions about what people already know about finances, such as what a budget is, or about money management.  After that, the course explains that the financial management course requirement and the budget management, the importance of setting goals, how to set goals, the difference between short term, medium term and long-term goals. The course explains the percentage of an individual’s income that should be devoted to each item in their budget. For example, mortgage or rent should be no more than thirty percent of the household income. Then the course provider discusses money management (thinking about what you want as opposed to what you need; the importance of comparison shopping; budgeting your money by tracking your spending, then reviewing your spending, and then creating a budget by taking into account your income; fixed and varied expenses, and learning to balance your checkbook; the importance of avoiding payday loans and title loans; information about insurance and the importance of saving money.  The course provider then goes on to explain all about credit listing the different types of credit; secured and unsecured credit.  The course provider discusses the importance of comparing credit offers and then explains the concept of predatory lending.  Credit discussions then explains FICO and credit scores, as well as the impact of bankruptcy on an individual’s credit report.

The course provider listed several websites that provided free financial information to consumers and then provides a nice summary of consumer protection laws.  Finally, the course gives a thorough summary of the changes of the bankruptcy law since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  At the end of course, you receive a Certification of Completion.  I found the course to be very informative and I thought it was a lot more interesting and a lot more useful than the prebankruptcy credit counseling course.

I recently read Dave Ramsey’s book regarding financial management after bankruptcy. I and several lawyers in the West Tennessee area agree that it was rather condescending. This makes me reluctant to recommend that particular course.

Be Wary of Debt Consolidation Companies

Since the economic meltdown of 2008, many consumers are so deeply in Debt that it is not possible to repay the loans without changing the payment arrangements.  A considerable number of consumers have found bankruptcy to be a viable option, especially since the stigma against bankruptcy has been fading since the 1970s.  However, some consumers are utilizing the services of Debt Consolidation Companies, which can be risky. 

Memphis TN Debt Consolidation | Law Office of John E. DunlapDebt Consolidation is defined as combining all Debt together and one payment with one interest rate either through a home equity line of credit, Chapter 13 bankruptcy (Wage Earner) or a Debt Consolidation Company.  This makes the payments easier to manage and often makes the monthly payment smaller by extending them over a longer period of time.  In a Chapter 13 bankruptcy and some Debt Consolidation Companies, the Debtor makes payments to the Chapter 13 trustee or the Consolidation Company, which then makes the payments to the consumer’s creditors. 

While Debt consolidation has a rather high success rate under Chapter 13 bankruptcy, using a Debt Consolidation Company to consolidate Debt does not provide the oversight of federal court and can be a big risk. Many of the Debt consolidation companies are for profit companies, though there are also nonprofit companies.  These companies offer loans to the consumer to cover the cost of Debt repayment, and then take of the responsibility of repaying the person’s loans.  Instead of paying each creditor separately, the consumer makes one payment to the Debt Consolidation Company.  The interest on the new loan is lower than previous Debts but since Debt Consolidation Companies make their money on interest, companies often stretch payments out over longer than necessary periods of time.  Often the total for the Debt consolidation loan is higher than the original loan. 

In addition to extending payments to cost more interest, Debt Consolidation Companies also charge consumers a monthly maintenance fee.  This can be as much as 18 percent of the consumer’s total monthly payment.  Moreover, if the payments are not made in a timely manner, the consumer’s credit report can be damaged further. 

Lastly, unlike Chapter 13 bankruptcy, creditors can refuse to work with the Debt Consolidation Company, leaving the consumer with an extra Debt payment in addition to the payments of the firm. It is also perfectly legal for a creditor to withdraw from the repayment plan at any time.  There are much better ways to consolidate Debt than employing the services of a Debt Consolidation Company.  It is not unusual for a Debtor to be in a worse financial position at the end of the consolidation.  If you are currently under financial distress, please seek the advice of a bankruptcy lawyer prior to entering into an agreement with a Debt Consolidation Company.

If you’re under financial distress from Debt, call us today for a free consultation at (901) 320-1603.